Indian sugar rises as govt defers duty-free imports

MUMBAI, Jan 30 (Reuters) - Indian sugar futures rose on Friday after the government put off a decision to allow duty free imports of raws for local sales, but gains were capped by strong trade expectations the move will be taken soon.

By 2:55 p.m. (0925 GMT), the February contract NSMG9 on the National Commodity and Derivatives Exchange was up 0.83 percent to 2,072 rupees ($42.3) per 100 kg, while March contract NSMH9 had risen 0.48 percent to 2,099 rupees.

"Industry was expecting (a) decision in yesterday's cabinet meet. But since it is deferred, we can see a temporary upside," said Vandana Bharti, a senior analyst at SMC Comtrade.

Sugar prices have spiked in recent weeks after forecasts of sharply lower output this year, alarming a government facing national elections by May.

Allowing raws imports for domestic sales -- most probably with an obligation to export refined sugar within two years -- would lower prices.

Government and trade estimates suggest sugar production will fall to 18 million tonnes in 2008/09 from 26.3 million tonnes a year ago.

Millers have already lined up raw sugar purchase deals with Brazilian producers anticipating a government ruling in favour of imports, and that also restricted the upside.

Spot prices in top producer Maharashtra rose 0.28 percent to 2,032.65 rupees. ($1=49 rupees)